Supply-Chain Redesign to Reduce Safety Stock Levels:  Sequencing and Merging Operations

Abstract:  We investigate the impact of the process of manufacturing and distribution on the safety stock levels in a supply chain.  A pipeline hedging method is used to derive a model for estimating the safety stock levels.  We propose methods and guidelines to redesign the manufacturing and distribution process to minimize the total safety stock investment for a specified service level.  The product family consisting of one product and two products is studied in detail.  Conditions and insights for better supply-chain management are developed.  These enable us not only to decide when a process redesigning activity is appropriate, but also to suggest the scale and the format of the process redesign.  Based on the results obtained, two procedures,  - re-sequencing and merging - are developed.  Finally, we demonstrate how these procedures can be extended to product families consisting of multiple products in a hierarchical manner.